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Dayton strikes out sales tax plan, keeps additional spending in plan

ST. PAUL -- Gov. Mark Dayton scaled back his tax requests today after hearing from the public, businesses and legislators that they were not keen on expanding the sales tax to most goods and services.

"This does not allow us to do as many things as we could in a broader reform, but that is the way it is," he said in announcing changes from his initial Jan. 22 budget proposal.

The governor still wants to raise taxes on the wealthiest Minnesotans more than $1 billion and increase public school and higher education spending almost that much. He also would increase economic development spending.

The Democratic governor dumped his sales tax changes, but maintained his allegiance to raising income taxes on individuals earning more than $150,000 a year of taxable income and couples with $250,000 and greater incomes. He also stood by a 94-cent-a-pack cigarette tax increase and forcing part-time Minnesotans to pay taxes to the state, although he admitted that the so-called snowbird tax has little chance of passing.

Dayton also withdrew his request to give each Minnesota property owner a $500 rebate. He kept in the plan a proposal to eliminate some tax breaks corporations receive.

The governor's budget proposal includes enough money to repay interest on a $750 million public works bill.

Dayton has said he plans to include St. Cloud, Rochester and Mankato civic centers in a public works bill, to be funded by the state selling bonds, but he has not decided on other projects he will suggest get funding. "Getting down to $750 million is challenging."

He plans to announce his bonding bill proposal in two or three weeks.

Commissioner Jim Schowalter of Minnesota Management and Budget said that proposed spending is little changed from Dayton's initial budget plan.

The revised Dayton plan does not go as fast as some want in repaying schools money the state borrowed from them, but Schowalter said the schools should get all of their money back by 2017.

Today's announcement will be the basis for legislators to develop a two-year budget that Dayton suggests spend $38 billion in state tax money.

Democrats, who control the state House and Senate, have said they expect to decide next week how much money they want to spend in each budget category, ranging from education to agriculture, natural resources to health programs.

While many legislative budget committees have begun discussing the Dayton budget, they have taken no action until they can examine his updated proposal.

Everyone knew when Dayton released his first budget plan on Jan. 22 that it would undergo changes. With volatile federal politics affecting the economy, as well as other factors, Dayton said in January that his budget would change.

The state's revenue picture looked better on Feb. 28 than it had in a late-2012 budget report. Instead of a $1.1 billion deficit, the February report showed it would be just $627 million. A more recent report indicated a slight revenue dip from Feb. 28's projections.

Republicans took credit for the improve February outlook, saying that policies when they controlled the Legislature in the past two years helped the economy improve. The GOP concentrated on budget cuts and regularly complain that Dayton's plan to increase taxes will hurt business and, thus, the economy.

Democrats, however, continued to press for more taxes and higher spending on programs such as education and economic development.

Dayton said that Republicans who oppose his plan should tell the public what they would do.

"It is their responsibility to tell us what is going to be cut and who is going to be hurt," Dayton said.

He complained that Republicans just want to cut the budget.

"Just say no to tax increases is not a budget plan and it is not responsible," he said.

Legislative committees likely will pass their budget bills beginning early next month, with full House and Senate action expected in late April or early May. The Legislature must adjourn by May 20, and legislative leaders promise they will not need to return in a special session to finish their work.

Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.